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Mixed Signals on The Future of SEC Cyber Enforcement

Posted in Cybersecurity, Regulation, Securities and Exchange Commission

As previously reported, the U.S. Securities and Exchange Commission (SEC) unanimously voted to approve additional guidance for reporting cybersecurity risks last month. However, it is unclear what, if any, impact the new guidance will have on the rate of SEC enforcement actions in the coming months.

According to a recent study by the NYU Pollack Center for Law & Business and Cornerstone Research, SEC enforcement actions significantly declined last year when compared with 2016. In fiscal year 2016, the SEC brought 92 enforcement actions against public companies and their subsidiaries. In fiscal year 2017, SEC enforcement declined by thirty three percent with the SEC filing 62 enforcement actions against public companies and their subsidiaries. Of the 62 enforcement actions, the SEC filed only 17 actions in the second half of fiscal year 2017. This was the largest semiannual decrease for a fiscal year since the Securities Enforcement Empirical Database (SEED) began collecting data in 2010. Similarly, the total monetary settlements declined from $1 billion over the first half of fiscal year 2017 to $196 million in the second half of the year.

The timing of the decline suggests that the Trump Administration may be reining in regulatory enforcement. However, despite the empirical slow down, Stephanie Avakian and Steven Peikin, the co-directors of the SEC’s enforcement divisions, deny that there has been any directive from the Trump Administration to slow the enforcement arm of the SEC. In fact, during the annual American Bar Association’s white collar conference, the co-directors cautioned that more enforcement actions—especially related to cybersecurity—may be on the horizon. Indeed, the SEC’s new cybersecurity guidelines coupled with the creation of the SEC Cyber Unit at the end of fiscal 2017 will give the SEC new tools to combat cyber related misconduct in 2018.